The Right Match

August 2016

One of the key features of the Turquoise Uncross functionality is that it only allows the matching of passive orders and participants can rest larger orders for longer to achieve better execution quality

Turquoise is the pan-European equities multilateral trading facility that provides users with a single connection to trade shares, depository receipts and exchange-traded funds to 19 major European and emerging markets with an efficient trading and post-trade model that delivers economies of scale. Members include banks, brokers, specialist trading firms and retail intermediaries.

Project Turquoise, an idea in 2006, was an initiative of members exploring whether, as users, they could implement a single competitive multi-country lit order book and innovate in some form of smart anonymous block auctioning. In September 2008, Turquoise launched with regulatory approval. London Stock Exchange Group joined Turquoise as majority owner in partnership with 12 investment banks.

One of the benefits of this relationship is the shared service level arrangements. For example, Turquoise now runs on the same low-cost technology platform, MillenniumIT, in use across London Stock Exchange Group. The benefit to members is not just a state-of-the-art and resilient platform, but also the similarity of application programming interfaces across markets that use MillenniumIT.

Amongst the rest of its innovations, stands Turquoise Uncross. It is a buy-side friendly randomised midpoint uncrossing for larger and less time sensitive passive orders. Turquoise Uncross only allows the matching of passive orders. The duration of resting period and random timing nature provides a fair and level playing field since no participant can initiate a trade with an aggressive order. With no preference to time sensitive persistent flow where an aggressor can initiate and choose the exact millisecond of execution; the result is participants in Turquoise Uncross can rest larger orders for longer to achieve better execution quality.

Key benefits of Turquoise Uncross:
— Participants benefit from size priority in the matching logic of the Turquoise Midpoint Dark Book, which leads to improved fill rates for larger block orders and reduces the impact of interacting with smaller orders, therefore enhancing the attractiveness for institutional flow.
— Participants can define their own Minimum Execution Size (MES), and each individual trade must match or exceed the MES, thereby reducing the end to end cost of trading by removing the post trade inefficiencies of being filled by a number of
smaller orders.

Turquoise Uncross takes place anywhere between 5 and 45 seconds throughout the trading day, the frequency of which is determined by the liquidity of the underlying security.